The prospect of a second bailout for debt-stricken Greece assuaged market fears of default on Friday as the country’s prime minister flew to Luxembourg to present plans for deeper austerity measures.
Prime Minister George Papandreou will outline a medium-term budget plan for deeper spending cuts, increased revenue and a faster sell-off of state assets to Jean-Claude Juncker, chairman of finance ministers of the 17-nation single currency.
Greek bond yields and the cost of insuring Greek debt against default fell sharply after a source familiar with the negotiations said that euro area officials had agreed in principle on a new rescue programme with extra official funding.
Inspectors from the European Commission, the European Central Bank and the IMF— known as the Troika — are also likely to issue their verdict on Greece’s troubled implementation of the bailout plan agreed last year.
A European source said the Troika report was likely to opt in favour of a fresh bailout.
There has been mounting expectations of a pledge by the lenders to provide Greece with a second bailout of up to €70 billion euros ($100 billion) on top of the existing rescue loan.
Greece has announced a €50-billion privatisation drive, including major companies such as the country’s main telecom and electricity operators.